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EM’s NIIP – a natural macro hedge

Weekly investor research

23 May 2016

Every time investors get scared and decide to sell EM, they strengthen EM’s net international investment position. This provides a powerful short-term fundamental hedge, which forms part of the resilience which has enabled EM corporate and sovereign issuers to withstand multiple external shocks over the last couple of years without excessive fundamental stresses. The hedge, however, is ultimately vulnerable. EM’s developed market assets offer increasingly lower return potential and increasing risks. What is a useful hedge in the short-term may turn out to be a serious liability for the longer-term.

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